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International Investment Law and EU Law pp 145–171Cite as

The Crucial Question of Future Investment Treaties: Balancing Investors’ Rights and Regulatory Interests of Host States

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Part of the book series: European Yearbook of International Economic Law ((Spec. Issue))

Abstract

When the Lisbon Treaty entered into force on December 1, 2009, competence over foreign direct investment passed to the European Union (EU). Whether this gives the EU exclusive competence for the conclusion of future international investment agreements (IIAs) has yet to be clarified. However, now more than ever the question arises of how protection of investors should be harmonized with the regulatory interests of the EU and its Member States. Pursuant to Article 205 TFEU and Article 21 EU Treaty, the principles and objectives encompassing the promotion of human rights, sustainable development, and the protection of the environment will have to be taken into account as part of the EU’s Common Commercial Policy and will influence the negotiation of future IIAs. Along with the intense debate as to whether the EU should retain investor–state dispute settlement provisions in future IIAs, the balance between investors’ rights and state regulatory interests will surely constitute one of the crucial questions in the drafting of future IIAs.

The author would like to thank the editors as well as, Martin Raible and Todd Fox, for helpful comments, and Elisa Freiburg and Luc Bigel for their research assistance. This article represents solely the author’s views.

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Notes

  1. 1.

    Article 206 and Article 207(1) Treaty on the Functioning of the European Union (TFEU), OJEU, May 9, 2008, C115/47.

  2. 2.

    See, e.g., Tietje, Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon, Beiträge zum Transnationalen Wirtschaftsrecht (2009), Heft 83 p. 16, http://www.wirtschaftsrecht.uni-halle.de/Heft83.pdf.

  3. 3.

    Bungenberg, Going Global? The EU Common Commercial Policy After Lisbon, in: Herrmann/Terhechte (eds.), European Yearbook of International Economic Law 2010, pp. 123 et seq. (128); Tietje, Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon, Beiträge zum Transnationalen Wirtschaftsrecht (2009), Heft 83, p. 19, http://www.wirtschaftsrecht.uni-halle.de/Heft83.pdf. For possible implications, see Bungenberg, The Politics of the European Union’s Investment Treaty Making, in: Broude/Porges (eds.), The Politics of International Economic Law, forthcoming 2010.

  4. 4.

    See, e.g., ICSID, Case No. ARB/01/3, Enron Corporation Ponderosa Assets L.P./Argentine Republic, Award (May 22, 2007), para. 331. This and all subsequent decisions are available at http://ita.law.uvic.ca or http://www.investmentclaims.com, as long as no other source is indicated.

  5. 5.

    This was recently admitted by the South African government in a policy paper: “Prior to 1994, the RSA [Republic of South Africa] had no history of negotiating BITs and the risks posed by such treaties were not fully appreciated at that time. The Executive had not been fully apprised of all the possible consequences of BITs. While it was understood that the democratically elected government of the time had to demonstrate that the RSA was an investment friendly destination, the impact of BITs on future policies were not critically evaluated. As a result the Executive entered into agreements that were heavily stacked in favour of investors without the necessary safeguards to preserve flexibility in a number of critical policy areas.” Bilateral Investment Treaty Policy Framework Review, 2009, p. 5, www.thedti.gov.za/ads/bi-lateral_policy.pdf.

  6. 6.

    See C.H. Brower II, Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 347 et seq. (357); Sornarajah, The Retreat of Neo-Liberalism in Investment Treaty Arbitration, in: Rogers/Alford (eds.), The Future of Investment Arbitration, 2009, pp. 273 et seq. (291).

  7. 7.

    This tendency is apparent in the USA, see Schwebel, The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law, in: Aksen/Böckstiegel/Mustill/Patocchi/Whitesell (eds.), Liber Amicorum Rober Briner, 2005, pp. 815 et seq. (823); Alvarez, The Evolving BIT, TDM 7 (2010) 1, p. 8.

  8. 8.

    Ecuador, e.g., terminated nine of its bilateral investment treaties (BITs) in 2008, Perkams/Secomb, Der Schutz deutscher Auslandsinvestitionen in Lateinamerika, WiVerw (2009) 1, pp. 31 et seq. (32); Cabrera Diaz, Ecuador Continues Exit from ICSID, Investment Treaty News (June 8, 2009), http://www.investmenttreatynews.org/cms/news/archive/2009/06/05/ecuador-continues-exit-from-icsid.aspx.

  9. 9.

    Bolivia declared its termination on May 2, 2007, whereas Ecuador declared its termination on July 5, 2009, http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp.

  10. 10.

    Alvarez, The Evolving BIT, TDM 7 (2010) 1, p. 14; Vandvelde, A Comparison of the 2004 and 1994 U.S. Model BITs, Rebalancing Investor and Host Country Interests, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 283 et seq. (288).

  11. 11.

    C.H. Brower II, Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 347 et seq. (361).

  12. 12.

    Kalderimis, Investment Treaties and Public Goods, TDM 7 (2010) 1, p. 10; Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (53).

  13. 13.

    Kalderimis, Investment Treaties and Public Goods, TDM 7 (2010) 1, pp. 15, 18.

  14. 14.

    E.g., ICSID, Case No. ARB/01/8, CMS Gas Transmission Company/ Argentine Republic, Award (May 12, 2005), para. 251.

  15. 15.

    E.g., ICSID, Case No. ARB/02/1, LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc/Argentine Republic, Decision on Liability (October 3, 2006), para. 205.

  16. 16.

    E.g., ICSID, Case No. ARB/00/2, Tecnicas Medioambientales Tecmed SA/United Mexican States, Award (May 29, 2003), para. 121.

  17. 17.

    E.g., NAFTA/UNCITRAL Tribunal, Methanex Corporation/United States of America, UNCITRAL (NAFTA), Award (August 3, 2005), Part IV Chapter D, para. 9.

  18. 18.

    ICSID, Case No. ARB/02/1, LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc/Argentine Republic, Decision on Liability (October 3, 2006), para. 195.

  19. 19.

    Article 10(6) Canadian Model BIT (2003).

  20. 20.

    ICSID, Case No. ARB(AF)/07/1, Piero Foresti, Laura de Carli and others/Republic of South Africa, Award (August 4, 2010) Coleman/Williams, South Africa’s Bilateral Investment Treaties, Black Economic Empowerment and Mining: A Fragmented Meeting? Business Law International 9 (2008) 1, pp. 56 et seq. (83); Peterson, Human Rights and Bilateral Investment Treaties: Mapping the Role of Human Rights Law Within Investor–State Arbitration, International Centre for Human Rights and Democratic Development, 2009, Volume 3 of Investing in Human Rights series, http://www.dd-rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf.

  21. 21.

    Van Aaken/Kurtz, The Global Financial Crisis: Will State Emergency Measures Trigger International Investment Disputes? Columbia FDI Perspectives, No. 3 (March 23, 2009), http://www.vcc.columbia.edu/documents/Perspective3-vanAakenandKurtz-FINAL.pdf; Subrate Bhattacharjee, National Security with a Canadian Twist, Columbia FDI Perspectives No. 10 (July 30, 2009), http://www.vcc.columbia.edu/pubs/documents/ICAPerspective-Final.pdf.

  22. 22.

    Di Pietro, State of Necessity in Investment Arbitration, The European and Middle Eastern Arbitration Review 2009, pp. 25 et seq.; Aguirre Luzi, BITs & Economic Crises: Do States have carte blanche? in: Weiler (ed.), Investment Treaty Arbitration and International Law – Volume 1, 2008, pp. 188 et seq.; Bottini, Protection of Essential Interests in the BIT Era, in: Weiler (ed.), Investment Treaty Arbitration and International Law – Volume 1, 2008, pp. 147 et seq.; Kurtz, Adjudging the Exceptional at International Law: Security, Public Order and Financial Crisis, Jean Monnet Working Paper No. 6, 2008, http://centers.law.nyu.edu/jeanmonnet/papers/08/080601.html; Binder, Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis, in: Binder/Kriebaum/Reinisch/Wittich (eds.), International Investment Law for the 21 st Century: Essays in Honour of Christoph Schreuer, 2009, pp. 608 et seq.; Alvarez/Khamsi, The Argentinean Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 379 et seq.; Bjorklund, Economic Security Defenses in International Investment Law, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 479 et seq.; Burke-White/von Staden, Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties, Virginia Journal of International Law 48 (2008), pp. 307 et seq.

  23. 23.

    See Article 25 ILC Draft Articles on the Responsibility of States for Internationally Wrongful Acts, International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries, Report of the Work of the ILC’s 53rd session, A/56/10 (2001), Yearbook of the International Law Commission 2001 II, pp. 31 et seq. (80 et seq.); ICJ, Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment (September 25, 1997), ICJ Reports 1997, pp. 7, 40, para. 52.

  24. 24.

    See, e.g., Article 24(3) ECT; Article 11 Argentina-USA BIT; Article 18 Uruguay-USA BIT; Article 3(2) at the end of the German Model BIT (2009); Article 2102 NAFTA. Further references in Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (52), footnote 83.

  25. 25.

    ICSID, Case No. ARB/01/8, CMS Gas Transmission Company/Argentine Republic, Decision on Annulment (September 25, 2007), para. 130; Binder, Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis, in: Binder/Kriebaum/Reinisch/Wittich (eds.), International Investment Law for the 21st Century, Essays in Honour of Christoph Schreuer, 2009, pp. 608, 613.

  26. 26.

    Similar provisions can be found, for example, in Article 1114(1) NAFTA; Article 12(2) Rwanda-USA BIT.

  27. 27.

    See Article 12 Norway Model BIT (2007): “Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety or environmental concerns.”

  28. 28.

    See Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 509; Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (45).

  29. 29.

    See, e.g., ICSID, Case No. ARB/96/1, Compañía del Desarrollo de Santa Elena/Costa Rica, Final Award (February 17, 2000), paras. 17 and 18.

  30. 30.

    Confirming an obligation to pay compensation or damages on the part of the host state based on environmental regulations of the host state, ICSID, Case No. ARB/96/1, Compañía del Desarrollo de Santa Elena/Costa Rica, Final Award (February 17, 2000), para. 72; ICSID, Case No. ARB/00/2, Tecnicas Medioambientales Tecmed SA/United Mexican States, Award (May 29, 2003), paras. 151, 195; ICSID, Case No. ARB(AF)97/1, Metalclad Corporation/United Mexican States, Award (August 30, 2000), para. 111.

  31. 31.

    See, e.g., Article 2(1) German Model BIT (2009).

  32. 32.

    But see Otto Sandrock, Staatsfonds und deutsche bilaterale Investitionsförderungs- und -Schutzverträge – Die Kontrolle von Staatsfonds ist mit diesen Verträgen nicht zu vereinbaren –, in: Grundmann/Kirchner/Raiser/Schwintowski/Weber/Windbichler (eds.), Festschrift für Eberhard Schwark, 2009, pp. 729 et seq.

  33. 33.

    Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (40).

  34. 34.

    Canadian Model BIT (2003), Annex IV; Article 1138 NAFTA and Annex 1138.2 NAFTA.

  35. 35.

    Subrate Bhattacharjee, National Security with a Canadian Twist, Columbia FDI Perspectives No. 10 (July 30, 2009), http://www.vcc.columbia.edu/pubs/documents/ICAPerspective-Final.pdf.

  36. 36.

    C.H. Brower II, Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 347 et seq. (352, para. 30, 353, para. 31) with further supporting documentation; UNCTAD, The Protection of National Security in IIAs, UNCTAD/DIAE/IA/2008/5, 2009, p. 11, http://www.unctad.org/templates/Download.asp?docid=11891&lang=1&intItemID=2983 with additional examples.

  37. 37.

    Article 20 (financial services), Article 21 (taxation) US Model BIT (2004); further examples in Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, pp. 506–508.

  38. 38.

    The scope of protection afforded by most-favoured-nation clauses, for example, is often restricted regarding free trade zones or customs unions, see German Model BIT (2009), Article 3(3)-(5).

  39. 39.

    Article 21(2) US Model BIT (2004); Article 16(3) Canadian Model BIT (2003); Article 2103(6) NAFTA; Article 170(4) b Japan-Mexico FTA; similarly Article 21(5)(b) ECT; Kolo, Tax “Veto” as a Special Jurisdictional and Substantive Issue in Investor-State Arbitration: Need for Reassessment? Suffolk Transnational Law Review 32 (2009) 2, pp. 475 et seq.

  40. 40.

    Not the case in the Energy Charter Treaty, see Article 21(5)(b)(iv) ECT.

  41. 41.

    Article 1131 NAFTA; Article 30(3) US Model BIT (2004); Article 40(2) Canadian Model BIT (2003).

  42. 42.

    Kolo, Tax “Veto” as a Special Jurisdictional and Substantive Issue in Investor-State Arbitration: Need for Reassessment? Suffolk Transnational Law Review 32 (2009) 2, pp. 475 et seq. (479); Weiler, Investment Arbitration and the Growth of International Economic Law, Business Law International 2 (2002) 2, pp. 158 et seq. (181–185); Whitsitt, NAFTA fifteen years later: the success, failures and future prospects of Chapter 1 (Interview with Todd Weiler) (February 16, 2009), http://www.investmenttreatynews.org/cms/news/archive/2009/02/17/nafta-fifteen-years-later-the-successes-failures-and-future-prospects-of-chapter-11.aspx.

  43. 43.

    Article 11.16 Australia-US FTA; Article 107 Japan-Philippines FTA.

  44. 44.

    Schedule Article 12 Mexico-Netherlands BIT; Canadian Model BIT (2003), Annex IV; Article 1138 NAFTA and Annex 1138.2.

  45. 45.

    See Annex B.4(b) US Model BIT 2004; Article 13 Footnote 4 and Annex B(13)(1)(c) Canadian Model BIT (2003).

  46. 46.

    McLachlan/Shore/Weiniger, International Investment Arbitration, Substantive Principles, 2007, para. 1.62.

  47. 47.

    See Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, pp. 176–181, 504; Wilske/Raible, The Arbitrator as Guardian of International Public Policy? Should Arbitrators Go Beyond Solving Legal Issues? in: Rogers/Alford (eds.), The Future of Investment Arbitration, 2009, pp. 249 et seq. (268); Kalderimis, Investment Treaties and Public Goods, TDM 7 (2010) 1, p. 10.

  48. 48.

    This might be different for clauses that are limited to the minimum standard of protection under international law, see Article 5(2) US Model BIT 2004.

  49. 49.

    The same applies to incorporating the stage of development of a host state in the interpretation process, which could justify regulation in an individual case; see Article 15(d) ASEAN-Australia-New Zealand FTA; Gallus, The Influence of the Host State’s Level of Development on International Investment Treaty Standards of Protection, Journal of World Investment & Trade 6 (2005) 5, pp. 711 et seq.

  50. 50.

    See also Hirsch, Interactions between Investment and Non-Investment Obligations, in: Muchlinksi/Ortino/Schreuer (eds.), The Oxford Handbook of International Investment Law, 2008, pp.154 et seq.

  51. 51.

    German Federal Law Gazette 1985 II, pp. 927 et seq.

  52. 52.

    For a study of Article 31(3)(c) VCLT, see French, Treaty Interpretation and the Incorporation of Extraneous Legal Rules, International and Comparative Law Quarterly 55 (2006) 2, pp. 253 et seq.; McLachlan, The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention, International and Comparative Law Quarterly 54 (2005) 2, pp. 279 et seq.

  53. 53.

    For examples, see van Aaken, Fragmentation of International Law: The Case of International Investment Law, Finnish Yearbook of International Law 17 (2008), pp. 91 et seq. (117–121).

  54. 54.

    See examples cited in Binder, Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis, in: Binder/Kriebaum/Reinisch/Wittich (eds.), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, 2009, pp. 608 et seq. (618).

  55. 55.

    SCC, Case No. 079/2005, RosInvestCo UK Ltd./Russian Federation, Award on Jurisdiction, October 2007, para. 39.

  56. 56.

    Aguirre Luzi, BITs & Economic Crises: Do States have carte blanche? in: Weiler (ed.), Investment Treaty Arbitration and International Law – Volume 1, 2008, pp. 165 et seq. (172); Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (57–58).

  57. 57.

    ICSID, Case No. ARB/05/6, Bernardus Henricus Funnekotter/Zimbabwe, Award (April 22, 2009), paras. 102–107.

  58. 58.

    See, e.g., ICSID, Case No. ARB/02/1, LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc/Argentine Republic, Award (October 3, 2006), para. 239; ICSID, Case No. ARB/03/9, Continental Casualty Company/Argentine Republic, Award (September 5, 2008), para. 213.

  59. 59.

    For a dogmatic underpinning see Kurtz, Adjudging the Exceptional at International Law: Security, Public Order and Financial Crisis, Jean Monnet Working Paper No. 6, 2008, p. 41, http://centers.law.nyu.edu/jeanmonnet/papers/08/080601.html; Binder, Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis, in: Binder/Kriebaum/Reinisch/Wittich (eds.), International Investment Law for the 21 st Century: Essays in Honour of Christoph Schreuer, 2009, pp. 608 et seq. (615); ICSID, Case No. ARB/01/8, CMS Gas Transmission Company/Argentine Republic, Decision on Annulment (September 25, 2007), para. 134.

  60. 60.

    See also ICJ, Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment (September 25, 1997), ICJ Reports 1997, pp. 7 et seq. (39, para. 48).

  61. 61.

    Amicus curiae petition by the International Commission of Jurists, para. 25, http://www.investmenttreatynews.org/documents/p/215/download.aspx.

  62. 62.

    ILC, Draft Articles on the Law of Treaties with Commentaries, Yearbook of the International Law Commission 1966 II, pp. 187 et seq. (248 para. 2).

  63. 63.

    ICJ, Barcelona Traction, Light and Power Company (Belgium/Spain), Judgment (February 5, 1970), ICJ Reports 1970, pp. 3, 32, para. 34; ILC, Draft Articles on the Law of Treaties with Commentaries, Yearbook of the International Law Commission 1966 II, pp. 187 et seq. (248 para. 3).

  64. 64.

    C.H. Brower II, Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes, in: Sauvant (ed.) Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 347 et seq. (372).

  65. 65.

    Dolzer/Schreuer, Principles of International Investment Law, 2008, p. 32; Van Aaken, Fragmentation of International Law: The Case of International Investment Law, Finnish Yearbook of International Law 17 (2008), pp. 91 et seq. (126); Kurtz, Adjudging the Exceptional at International Law: Security, Public Order and Financial Crisis, Jean Monnet Working Paper No. 6, 2008, p. 33, http://centers.law.nyu.edu/jeanmonnet/papers/08/080601.html.

  66. 66.

    See Burke-White, The Argentine Financial Crisis: State Liability under BITs and the Legitimacy of the ICSID System, Asian Journal of WTO & International Health Law and Policy 3 (2008) 1, pp. 199 et seq. (221–223); Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions, Fordham Law Review 73 (2005), pp. 1521 et seq. (1557, 1582, footnote 303 with further references).

  67. 67.

    Paulsson, International Arbitration and Generation of Legal Norms: Treaty Arbitration and International Law, TDM 3 (2006) 5, pp. 1 et seq. (4).

  68. 68.

    For examples, see Newcombe, General Exceptions in International Investment Agreements, in: Cordonier Segger/Gehring/Newcombe (ed.), Sustainable Development in International Investment Law, forthcoming 2010.

  69. 69.

    Alvarez/Khamsi, The Argentinean Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 379 et seq. (478).

  70. 70.

    See, e.g., the preamble of the Norway Model BIT (2007): “Desiring to achieve these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognized labour rights; (…).”

  71. 71.

    See López/Ortiz, New BIT between Spain and Libya: Promoting investments while protecting the environment (November 5, 2009), http://arbitration.practicallaw.com/0-500-6695.

  72. 72.

    See the in-depth study by Ceyssens/Sekler, Bilaterale Investitionsabkommen (BITs) der Bundesrepublik Deutschland: Auswirkungen auf wirtschaftliche, soziale und ökologische Regulierung in Zielländern und Modelle zur Verankerung der Verantwortung transnationaler Konzerne, 2005.

  73. 73.

    López/Ortiz, New BIT between Spain and Libya: Promoting investments while protecting the environment (November 5, 2009), http://arbitration.practicallaw.com/0-500-6695. Similar, but without dealing with the question of compensation, Article 10 of the El Salvador-Nicaragua BIT. The Belgium/Luxembourg-Libya BIT lays down environmental protection provisions in Article 5 and provisions on labor standards in Article 6; likewise the US Model BIT (2004) in Articles 12 and 13.

  74. 74.

    In treaty practice, the room to maneuver is also guaranteed by formulating clauses in such a way that they are “self-judging” [see, e.g., Article 18 US Model BIT (2004)] and, therefore, not subject to review by the courts. However, the measure should still be subject to review according to the principles of good faith, see UNCTAD, The Protection of National Security in IIAs, UNCTAD/DIAE/IA/2008/5, 2009, p. 60, http://www.unctad.org/templates/Download.asp?docid=11891&lang=1&intItemID=2983.

  75. 75.

    See Schill, Auf zu Kalypso? Staatsnotstand und Internationales Investitionsschutzrecht – Anmerkungen zur Entscheidung LG&E Energy Corp/Argentina, SchiedsVZ (2007) 4, pp. 178 et seq. (184). It is, however, doubtful as to whether sufficient comparability exists to apply the principles of necessity mutatis mutandis to clauses aimed at protecting national security, see ICSID, Case No. ARB/01/3, Enron Corporation Ponderosa Assets L.P./Argentine Republic, Award (May 22, 2007), para. 334; but see Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.) Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35, 67.

  76. 76.

    For examples of FTAs with investment chapters see Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 490. “Security exceptions” and “general exceptions” are combined in Article 24 ECT. Article 24(1) and (2) ECT relates to public interest, whereas Article 24(3) ECT deals with the protection of national security and public order.

  77. 77.

    Newcombe points out that the incorporation of specific regulatory clauses in IIAs might even prove beneficial for investors. Experience in WTO law has shown that a codification of regulatory clauses can limit the regulatory flexibility of host states. Host states might find themselves limited to a regulation of the particular public interests embodied in the specific regulatory clause. They would, however, be prevented from pursuing other kinds of public interests not contained in such a clause; see Newcombe, General Exceptions in International Investment Agreements, in: Cordonier Segger/Gehring/Newcombe (eds.), Sustainable Development in International Investment Law, forthcoming 2010. Thus, specific regulatory clauses seem to constitute an appropriate form of balancing investors’ rights and host states’ interests. The express confirmation of the regulatory freedom of host states through incorporation in an IIA is balanced by the increased legal certainty for investors as to what can be regulated.

  78. 78.

    See also Article 24 Norway Model BIT (2007); Article 15(1)(c) Japan-Vietnam BIT. For additional examples see Newcombe, General Exceptions in International Investment Agreements, in: Cordonier Segger/Gehring/Newcombe (eds.), Sustainable Development in International Investment Law, forthcoming 2010.

  79. 79.

    ICSID, Case No. ARB/01/8, CMS Gas Transmission Company/Argentina, Decision on Annulment (September 25, 2007), para. 146.

  80. 80.

    Similarly Article 24(2) ECT: “The provisions of this Treaty (…) shall not preclude any Contracting Party from adopting or enforcing any measure (…).”

  81. 81.

    Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, pp. 505, 506.

  82. 82.

    Therefore, even when framing the regulatory clause as an exception, the drafters of the regulatory clause should ensure that the duty to pay compensation in the case of an expropriation remains. Otherwise, the very principles of investment protection would be eroded. See also Newcombe, General Exceptions in International Investment Agreements, in: Cordonier Segger/Gehring/Newcombe (eds.), Sustainable Development in International Investment Law, forthcoming 2010.

  83. 83.

    This also applies to the concept of regulatory freedom as laid down in Article 24 ECT. Although the clause is effectively designed as an exception in Article 24(2) ECT, Article 24(1) ECT provides that the exception is not to be applied to compensation in the case of expropriation. Despite the freedom to regulate contained in Article 24(2) ECT, the host state would therefore still be obliged to pay compensation in the case of expropriation. See also Article 15 Japan-Vietnam BIT.

  84. 84.

    On the principle of proportionality in international law, see van Aaken, Defragmentation of Public International Law Through Interpretation: A Methodological Proposal, Indiana Journal of Global Legal Studies 16 (2009) 2, pp. 483 et seq.

  85. 85.

    Ursula Kriebaum, Eigentumsschutz im Völkerrecht – Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz, 2008, p. 554; similarly Hirsch, Interactions between Investment and Non-Investment Obligations, in: Muchlinksi/Ortino/Schreuer (eds.), The Oxford Handbook of International Investment Law 2008, pp. 154 et seq. (177).

  86. 86.

    Whether the regulation was necessary to achieve the desired effects will often have already been examined when the chapeau of the regulatory provision was reviewed, see, e.g., Article 10 Canadian Model BIT (2003) (“necessary”).

  87. 87.

    OECD, Building Trust and Confidence in International Investment, 2009, p. 17, http://www.oecd.org/dataoecd/18/47/42446942.pdf.

  88. 88.

    Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 504.

  89. 89.

    See, e.g., Article 4(2) Azerbaijan-Belgium/Luxembourg BIT, which, however, only applies to regulation aimed at protecting national security.

  90. 90.

    E.g., Article 200 China-New Zealand FTA.

  91. 91.

    Kalderimis, Investment Treaties and Public Goods, TDM 7 (2010) 1, p. 1; Kurtz, The MFN Standard and Foreign Investment – an Uneasy Fit? Journal of World Investment & Trade 5 (2004) 6, pp. 861 et seq. (866–872).

  92. 92.

    See ICSID, Case No. ARB/03/9, Continental Casualty Company/Argentine Republic, Award (September 5, 2008), para. 192.

  93. 93.

    Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 504.

  94. 94.

    For a differentiated distribution of the burden of proof in the case of regulation aimed at protecting national security, see Muchlinski, Trends in International Investment Agreements, Balancing Investor Rights and the Right to Regulate. The Issue of National Security, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 35 et seq. (71).

  95. 95.

    Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 504.

  96. 96.

    According to Newcomb and Paradell, arbitral tribunals display a good deal of skepticism toward using WTO case law in their interpretative process, Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 503, with reference to NAFTA/UNCITRAL Tribunal, Methanex Corporation/United States, Final Award (August 3, 2005), Part IV para. 21. By contrast, the arbitral tribunal in ICSID, Case No. ARB/03/9, Continental Casualty Company/Argentine Republic, Award (September 5, 2008), para. 192, was more open toward referencing WTO case law. This might be explained by the fact that the president of the arbitral tribunal, Professor Sacerdoti, was a member of the WTO Appellate Body from 2001 to 2009.

  97. 97.

    Article 200 of the China-New Zealand FTA; Chapter 5 Article 1(2) of the ASEAN-Australia-New Zealand FTA.

  98. 98.

    For a critical view, see Tams, An Appealing Option? The Debate about an ICSID Appellate Structure, Beiträge zum Transnationalen Wirtschaftsrecht Heft 57, 2006, p. 42, http://www.wirtschaftsrecht.uni-halle.de/Heft57.pdf.

  99. 99.

    See, e.g., Van Harten, Investment Treaty Arbitration and Public Law, 2007, p. 180.

  100. 100.

    See Wilske/Raible, The Arbitrator as Guardian of International Public Policy? Should Arbitrators Go Beyond Solving Legal Issues? in: Rogers/Alford (eds.), The Future of Investment Arbitration, 2009, p. 249 et seq. (270): “Arbitrators – like judges – can only be as good as the law they apply.”

  101. 101.

    Newcombe/Paradell, Law and Practice of Investment Treaties, Standards of Treatment, 2009, p. 504.

  102. 102.

    Kalderimis, Investment Treaties and Public Goods, TDM 7 (2010) 1, p. 18; Alvarez/Khamsi, The Argentinean Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime, in: Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009, 2009, pp. 379 et seq. (478): “BIT parties can change the treaties they ratify (…) to incorporate more sovereignty-protective provisions. (…) Demanding that arbitrators recalibrate BITs by rewriting them for the state parties is not the best route to legitimize the investment regime.”

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  1. Gleiss Lutz, Maybachstraße 6, 70469, Stuttgart, Germany

    Lars Markert

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  1. , Business Economics and Business Law, University of Siegen, Hölderlinstr. 3, Siegen, 57068, Germany

    Marc Bungenberg

  2. , International Investment Law Centre Colo, University of Cologne, Albertus Magnus Platz, Köln, 50935, Germany

    Joern Griebel

  3. , Juristische Fakultät, WHI, Humboldt-University of Berlin, Unter den Linden 6, Berlin, 10099, Germany

    Steffen Hindelang

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Markert, L. (2011). The Crucial Question of Future Investment Treaties: Balancing Investors’ Rights and Regulatory Interests of Host States. In: Bungenberg, M., Griebel, J., Hindelang, S. (eds) International Investment Law and EU Law. European Yearbook of International Economic Law(). Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14855-2_10

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